Equity Compensation

## Equity Compensation

Equity compensation gives employees an ownership interest in the company, aligning their financial incentives with long-term company performance.

### Types

| Vehicle | Description | Risk Level |
|---------|-------------|------------|
| ISOs/NSOs | Right to buy shares at strike price | High |
| RSUs | Promise of shares upon vesting | Medium |
| Restricted Stock | Shares granted subject to forfeiture | Medium |
| ESPP | Discounted share purchase (typically 15% off) | Low |
| Phantom Stock | Cash bonus tied to share value | Low |
| Profit Interests | LLC ownership units | Medium |

### Why It Matters

At major tech companies, equity can represent 30–60% of total compensation. For startups, equity is often the primary tool for attracting talent when cash is limited. Understanding vesting schedules, tax implications, and liquidity options is critical for personal financial planning.

### Tax Complexity

Each equity type has different tax treatment across jurisdictions. Key decisions include when to exercise options (ISO holding periods), whether to file an 83(b) election for restricted stock, and how to manage AMT exposure.